R&D experts are urging government to rethink administrative functions of the R&D Tax Incentive Scheme, rather than impose more limitations on innovative enterprises in the federal budget.
In recent comments to the Australian Financial Review, Treasurer Scott Morrison revealed there will be changes to the R&D tax incentive that will be announced in the pre-election federal budget this week.
In 2016, Innovation and Science Australia released a review of the R&D tax incentive which contained six recommendations to the government. Since then, the government have yet to issue a policy response, although the ATO has been very active with compliance activity and Taxpayer Alerts, which merely enforce existing rules.
Dr. Rita Choueiri, Principal of R&D Incentives at chartered accounting and advisory firm William Buck, says having R&D-specific professionals registered under the Tax Agent Services Act 2009, will assist resource-strapped AusIndustry with quality assurance and its task of regulating the program.
“The proposed budget changes to cap funding are fundamentally inconsistent with the purpose of the program which is to incentivise innovative businesses,” Dr. Choueiri said.
“The ATO and AusIndustry are under pressure due to the current self-assessment model and an unregulated R&D advisor market.
“A solution is to have registered R&D agents doing the leg work for AusIndustry. This would improve the current two-agency administration model and filter rogue claimants and inexperienced consultants out of the program,” she said.
“There is an existing regulatory system for tax agents and BAS Agents, it makes sense to leverage this established system, to also cover R&D Agents”.
William Buck tax director and R&D specialist Jack Qi supports the plan, saying it would also provide a single accessible registered agent database that would increase transparency.
“Strengthening the integrity of the system in this way could improve the prospect of other measures being introduced that will genuinely help Australian enterprises,” Qi said.
“The biggest risk is that the government changes the R&D tax incentive to limit its financial cost, but doesn’t exclude those who are abusing the system. This could ultimately penalise the genuinely innovative businesses,” he said.
The Government needs to be very careful about limiting the eligibility of these activities for the R&D tax incentive, particularly with global competition for cutting-edge research.
“The businesses of tomorrow are technology based, so naturally there will be a lot of R&D activity in that space,” he said.
“We don’t want Australia falling behind the rest of the world,” he said. “Encouraging innovation is key to Australia’s future economic success -we can’t lose sight of that.”
Choueri and Qi propose a four-point plan for improving the integrity of the current R&D tax incentive arrangements without imposing caps that stifle real innovation:
- Bring R&D advisors under the Tax Agent Services Board requirements to improve the overall quality and supervision of R&D advisors.
- Publish more detailed guidance from the ATO and AusIndustry on the documentation businesses need to maintain, to show they qualify for R&D. The ATO could rerelease guidance on how to calculate the R&D expenditure as they used to do under the R&D tax concession.
- Industry specific reports from ATO and AusIndustry published each year, highlighting issues that are observed in the main industries where R&D activities are occurring.
- Have the pre-approval process of multi-year R&D projects streamlined into the registration process. If the preapproval is already received and activities haven’t changed significantly then, there shouldn’t be a need for companies to register them year on year.
Choueiri says rather than marginalising those at the forefront of innovation, these measures will provide them with better options for reducing financial risks.
“Ultimately, these measures would stop the need to introduce capped funding in the federal budget, which would damage the R&D tax incentive scheme,” Choueiri said.
“Australia has slowly gained traction as an R&D destination. Targeting these underlying administrative issues would mean innovative companies continue to be supported to help generate Australia’s future economic prosperity.”